All Forum Posts by: Jack Medford

@Igor Fabyanchuk As @Nathan Gesner mentioned, try making use of the calculators after reading the article he linked. Then, just pick out a random property and practice using the calculator. You can then present your report to the forums and ask others what they think of your analysis. 

It is hard to give great advice without knowing where you're looking to buy, what type of property, and what assumptions you are making about expenses. 

The problem I see is that these numbers don't work even if you are an in state investor. As @Russell Brazil pointed out, you're not going to make money if your costs are that high. You've got a 1% property that has an HOA and a PM that charges 12%. These alone eat a lot of cash flow.

Personally, I don't ever look at 1% properties because I put PM in place on all my properties, and the numbers just don't work. The numbers can work if you are buying in an area with decent appreciation prospects and you are counting on loan paydown as an avenue for profit, however cash flow will be tight.

I stick with properties that are at least 1.5% cash flow, and then any appreciation is gravy on top. There are a lot of markets like that here in the MidWest. 

I'll add onto what others have already said about Milwaukee County. I've been focusing a lot of my efforts there due to the great rent/price ratio. There are also a number of good PM companies that handle everything from finding/scouting properties to handling rehab. Plus the actual management, of course

I've also started look into Southern Wisconsin, specifically Rock County. Janesville and Beloit in particular have similar, if not better, numbers than what I've seen in Milwaukee. The big difference being they are smaller cities/town than Milwaukee. 

@Samantha Froelich lex I agree with what @Zack Karp said about finding a loan officer. You first need to know how much debt you will be allowed to take, and also what kind of program will work for you. 

How much down payment do you have available? Also, how much is the absolute maximum you want to pay per month to live in the duplex? 

For example, if you want your max monthly payment to be $800/month and you find a duplex that will rent one side for $1,200/month, then you can sort of reverse engineer how much your payment should be. Using the 50% rule, let's assume $600 for expenses. This leaves $600 you can apply toward your debt service. This would give you a maximum mortgage of $1,400/month. 

Not sure your financial situation, but if you qualify for a 5% 30 year fixed loan then you can take out about $260k in debt to get a $1,400/month payment. 

These numbers will all change with your preferences, of course. Hopefully this will at least help to get you started. 

@Jessica Schonter I second what @Nathan Gesner said about credit being important, but only one factor. I look at job history as well as income to month ratio. Even more importantly than these (at least for me) is to look at eviction history and to receive referrals to past landlords. 

Have they lived in the same property for a number of years before yours? Or have they bounced around to a new place every year? That pattern might tell you something as well. 

First, mention to her that you purchase properties as an investment. This means you do not purchase at retail value. However, by allowing you to purchase the property, she will avoid the headache and time it will take to go through the traditional route.

I would then ask the friend's mom how much she wants for the house. This will push her to name a price first, while also letting you see how accurately she prices her home. From there, (assuming her price is much higher than yours) you can say something to the affect of, "I'm sorry, but I am unable to purchase at that price. For a home like this, I would typically purchase for $105k-$135k (the range allows you to low-ball while also giving her a high end that she might think is a win)." 

After that, you'll just have to see how she takes the low offer. If her goal is to sell quickly and not deal with agents, then you may have a lot more room to negotiate than you think. If her goal is to get the most money possible, then she'll probably scoff at your range and say she is taking her property to market. However, by mentioning you are an investor and using terms like "I'm sorry, but..." and "I'm afraid that..." you present yourself as non-confrontational which will help her empathize with your position. 

Hope this helps. 

As others have mentioned, passive income appears to be defined differently depending who you ask. For me, passive income means something like bonds or equities which pay divined. I purchase and can literally never think about them again if I don't feel like it. 

Real estate, on the other hand, is not truly passive. It takes a lot of up front work to make a truly viable cash flowing portfolio. Once all that work is put in, I still expect to spend at least a few hours each month dealing with my properties (even with management in place). That is not to mention the networking I do (on here and in person) which at times feels like a job itself. While the payoff is nice, and the long term effort is less than working a full time job, it is definitely not passive. 

@Gina Carter solid communication is key, both to the owner and tenants. I get the most frustrated when I feel out of the loop, or that I am not being told the full story. I also really appreciate when management helps me with the decision making process, but then leaves me to make the final decision. 

For instance, I trust my management with recommendations for both areas to invest, as well as what to screen for in potential tenants. I have my own thoughts on each issue, but the input from management is invaluable since they are the ones actually dealing with the day to day. 

@Kai Van Leuven If you are having a lot of issues with finding tenants with good credit, maybe use a different metric to determine economic viability? Where I invest, the typical tenant has absolutely horrible credit, so instead we use income to rent ratio. We try to find tenants with income that is 3X the rent (2.5X at the lowest). 

In some places I own, the ratio is closer to 1.5, because they are just super low income tenants. In these places, I just account for a much higher vacancy rate when purchasing. I've also recently made the decision to stop purchasing in almost all of these areas, as they come with more headaches than they are worth. 

Where is this house located? Is $10k a pretty typical home price in your area? As far as I'm aware, if you purchase this property you'll be liable for those taxes, so it likely isn't even worth the $10k (unless you're factoring the taxes into that amount already). 

Based on the info provided, I'm not sure if there is a way to stay unless your landlord becomes more reasonable. She has unpaid taxes and is not willing to budge on her asking price. I'd plan to move, and if you have the means, try to buy another home if you can find one within your range. 

Either way, best of luck to you!